Find out how to register for as an employer, how the payroll system works and who needs to register for PAYE with HMRC. This guide is applicable if you are the Director of a Limited Company and want to pay yourself tax efficiently as the only employee.
Table of contents
1. Do You Need to Register as an Employer?
You need to register as an Employer if have employees who are:
- Paid more than £120 per week including expenses and benefits and don’t have another job or receive a pension;
- You are a Director of a Limited Company and want to pay yourself in a way that takes full advantage of the tax benefits of being incorporated.
You do not need to register if you are employing freelancers or anyone who is self-employed because they are responsible for handling their own taxes.
2. What is Payroll?
Payroll is a list of employees that work for a business, for whom the business is responsible for paying via the PAYE system.
PAYE stands for ‘Pay As You Earn’ which is HMRCs system that makes employers responsible for collecting income tax and national insurance from people who are employed. As part of managing PAYE, employers must:
- Calculate and deduct tax every time they pay their employees;
- Provide them with a payslip detailing deductions;
- Pay deductions made for tax over to HMRC on behalf of employees by the 21st of the month following the end of the month employees are paid;
- Deduct pensions and make a contribution on behalf of each employee, who meets the criteria.
As an employer, you’ll know how much tax to deduct because HMRC will either send you a tax code telling them you much to deduct, or you’ll find it on your employees P45 or starter checklist (previously called a P46). Tax codes can take account of other deductions needed such as taxable state benefits so it is important to use the code from HMRC, and not one requested by your employee because they may need to pay deductions that you are not aware of.
To get information such as tax codes, report on tax deductions and make payments to HMRC, you’ll need to register with HMRC as an employer so you have an ‘account’ within which to manage your payroll.
3. When to Register for PAYE
You need to register before your first payday, but you cannot register more than 2 months before you start paying people. Once approved you’ll get an Employer PAYE Reference Number (ERN).
Ideally try to register a month before your first payday, because that should give you sufficient time to be accepted by HMRC and your employer’s reference number to be issued.
4. How to Register as an Employer
If you’re a limited company with 1 to 9 directors, then you can go over to the HMRC website to register online.
4.1 Sign Into Your Online Business Account
You’ll need to sign into your online business tax account, or set one up if you don’t have one already. Once inside you’ll need to register for a new tax for your business and you’ll need to choose ‘PAYE for Employers’.
4.2 Select Your Business Structure
Choose whether you are registered as self-employed, have a partnership or Limited Company.
4.3 Enter Your Tax Reference Number
If you are a sole trader, that’s your UTR number. If you are in a partnership then you’ll need to enter your partnership number and if you have a Limited Company you’ll need to enter your business UTR (not your personal one).
4.4 Enter Your Employees First Pay Day
You’ll need to enter your employees first pay day. If your first pay day occurs after the end of the tax year, HMRC may delay your registration to the new tax year so that you don’t have to complete end of year forms when you’ve not actually run any payroll.
4.4 Complete the Employers Registration Form
Finally, you’ll need to enter information on yourself and your business before submitting your application to HMRC. You’ll need to provide things like your business address, correspondence address and details of directors/partners.
You’ll be asked whether you plan to ‘engage with subcontractors’ as part of completing this part of your PAYE application. When it comes to HMRC, subcontractors actually means people registered as part of the Construction Industry Scheme – which is a special tax scheme that helps construction workers spread the payment of their income tax. It doesn’t mean freelancers or people you may contract work out to, although it may sound that way.
4.5 Submit Your Application
Finally, once you’ve entered all the information required, you’ll need to submit your application to HMRC online. You can download a PDF copy of your Employer Registration Application form for your records, which I recommend you do.
HMRC will then contact you once they have reviewed your application and you’ll be issued with an Employers PAYE Reference Number.
5. What is an Employers PAYE Reference Number (ERN)?
An employers reference number is given to all businesses that are registered as an Employer. An ERN is made up of letters and numbers, here’s an example of what one looks like:
123/AA45678
The first three letters denote the tax office the business is assigned to.
It’s important to keep hold of your employers PAYE reference number, you’ll need it to set up payroll, when you contact HMRC about PAYE and need to include it on payroll forms like payslips, P60s and P45s.
6. Accounts Office Reference Number
In addition to an ERN, you’ll also be given an account office reference number. This is a reference that you need to use when it comes to making your PAYE payments and it’s important you include it as a PAYE payment reference on all your payments so HMRC knows money has come from you.
By not putting a payment you risk your money getting lost in a suspense account, which can be time-consuming to find.
